CONFLICT MINERALS COMPLIANCE AND REPORTING

RC: How would you describe the current conflict minerals compliance and reporting landscape? What are the main issues and challenges you have observed?

Sullivan: Continued uncertainty is a good way to describe the current conflict minerals compliance and reporting landscape. With the 18 August 2015 US Court of Appeals for the District of Columbia Circuit (Appellate Court) reaffirming its previous ruling that parts of both the SEC’s Final Rule and Section 1502 of the Dodd-Frank Act violate the First Amendment, market participants remain uncertain around how the issue will be resolved and when the SEC will respond or provide further guidance. There are three main challenges for registrants in particular. First, given the SEC’s partial stay and the ‘temporary suspension’ of the broad applicability of the independent private sector audit (IPSA) requirement, when will the IPSA be required? The second challenge is how to balance the SEC’s partial stay with the expiration of the temporary transition period provided for in the Final Rule to determine the adequacy of disclosure for the 2015 calendar year reporting. The third challenge is how to drive continued conflict minerals compliance programme performance improvement with supply chain partners in light of regulatory uncertainty.

Heim: Variability in the SEC submittals at this time is, in our opinion, a function of two main factors – firstly, limited information from the SEC on interpretations and guidance to clarify the disclosure requirements, and secondly, supply chain data availability and quality. The SEC has provided limited clarifications on the disclosures, issuing only two sets of FAQs for a total of 21 points of guidance. To a large extent, issuers have been left to their own reporting approach, resulting in inconsistencies between the submittals. The recent Assent Compliance study on all 1200-plus CY2014 filings – 1060 of which filed a Conflict Minerals Report (CMR) – conducted by Christopher Bayer, PhD provides excellent information on reporting trends and gaps. What was most surprising is that only 41 percent of CY2014 CMR filers listed the smelters/refiners, and only 32 percent disclosed the countries of origin. These two elements represented the lowest compliance rates of all components of the disclosure mandate. Reporting is improving and will continue to do so as the availability and quality of data improves.